The Regional Greenhouse Gas Initiative (RGGI) took a bit of a blow today when Governor Christie of New Jersey, the second-largest of the 10-state group, announced that the state was leaving the organization. This comes only a few weeks after the narrow defeat of bills to repeal RGGI in New Hampshire, Delaware and Maine. However, RGGI announced on its website that the participating states would proceed with their 12th quarterly auction as scheduled on June 8th.

Despite Governor Christie’s announcement, official withdrawal from RGGI requires legislative action, namely repeal of the provisions of New Jersey’s Global Warming Solutions Fund Statute that established the cap-and-trade program within the state. Currently pending before the New Jersey legislature is a bill that would repeal these sections and transfer any remaining money from allowances into the state’s general fund.

So what happens now? Will the nine remaining states reduce their own RGGI allowance budgets in order to recognize the NJ allowances already sold? Or will they proceed as if New Jersey was never part of the program in the first place, and invalidate the allowances?

In the press release responding to the announcement, the organization said only that “the participating states will evaluate how New Jersey’s proposed withdrawal might affect New Jersey allowances currently in circulation.” It will be interesting to see if the New Jersey-based power plants which have been buying allowances along the way at quarterly auctions, in preparation for the end of the 3-year compliance period this December, will demand a refund from the state for their potentially worthless allowances. In addition to the loss of significant RGGI-allowance revenue going forward, this could create a problem for this already cash-strapped state.

In the last two years, New Jersey took in over $113 million from the sale of allowances in the nine auctions in which it participated. This money was divided up in a number of ways – including the Governor’s recent withdrawal of $65.2 million to balance the current state budget. New Jersey has also already awarded $29.6 million in allowance proceeds to 12 large scale energy efficiency and renewable energy projects through its Clean Energy Solutions Capital Investment Loan/Grant Program. According to New Jersey’s statements through the RGGI website, these programs would create enough renewable energy to meet the demands of more than 19,600 New Jersey households each year, and would avoid 1.7 million tons of CO2 over the lifetime of the projects.